Bank of America
FX Outlook 2026: Structural Dollar Headwinds
Macro Scenarios
Bank of America EUR/USD scenario analysis and USD macro framework
EUR/USD Fair Value by Scenario
Base case highlighted in red
Rate Spread Sensitivity
Fed-ECB spread vs EUR/USD fair value
Fed vs ECB Rate Assumptions
Central bank rate assumptions across scenarios
Most bearish EUR/USD outcome. ECB forced to cut further while Fed holds on firm inflation.
Slow Fed easing, ECB at terminal. EUR gains limited to rate convergence.
German fiscal stimulus lifts EZ growth, Fed eases. EUR/USD reaches 1.20+ by mid-year.
Maximum fiscal multiplier scenario. European growth surprises to upside, ECB forced to pause.
Bull case. US recession drives aggressive Fed cuts while EU fiscal expansion sustains growth.
USD Macro Scenario Matrix
Growth x Inflation framework for the dollar
USD weakens sharply as twin deficits become focus. Safe haven flows initially support but quickly reverse. EUR and CHF primary beneficiaries. EM carry unwinds completely.
Stagflation scenario most negative for USD as real rates turn deeply negative. Gold and CHF outperform. EUR benefits if not energy-driven. Commodity currencies mixed.
Base case scenario. USD weakens steadily as twin deficits and European fiscal expansion drive rotation. EUR, GBP, NOK, SEK outperform. EM carry delivers strong returns.
Fed on hold longer than expected but fiscal deterioration still weighs. EUR range-bound. NOK and AUD benefit from commodity link. EM carry mixed.
Strong US growth partially offsets twin deficit drag. USD range-bound. Cyclical currencies outperform. EM high beta currencies rally.
Strong growth + firm inflation keeps Fed hawkish. USD strengthens modestly. Low yielders underperform. High yielders insulated by carry.